2015 State of Logistics Air: Air cargo sector strengthens

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By Patrick Burnson, Executive Editor
July 01, 2015

The International Air Transport Association (IATA) announced an upward revision of its 2015 industry outlook to a $29.3 billion net profit. On expected revenues of $727 billion, the industry would achieve a 4 percent net profit margin.

This significant strengthening from the $16.4 billion net profit in 2014 reflects the net impact of several global factors, including stronger global economic prospects, record load factors, lower fuel prices, and a major appreciation of the U.S. dollar.

According to IATA, all regions are expected to see an improvement in profitability in 2015 compared to last year. There are, however, stark differences in regional economies, which are also reflected in airline performance. “The industry’s fortunes are far from uniform, but there are improvements,” says Tony Tyler, IATA’s director general and CEO. “We need to keep in mind that many airlines still face huge challenges.”

The IATA projects that over half the global profit will be generated by airlines based in North America ($15.7 billion). For these carriers, the margin on earnings before interest and taxation is expected to exceed 12 percent—more than double that of the next best performing regions of Asia-Pacific and Europe.

“For the airline business, 2015 is turning out to be a positive year,” says Tyler. “Since the tragic events of September 2001, the global airline industry has transformed itself with major gains in efficiency, and the result is a hard-earned 4 percent average net profit margin.”

However, Tyler adds that shippers should “keep things in perspective,” noting that Apple earned $13.6 billion in the second quarter of this year. “That’s just under half the expected full-year profit of the entire airline industry. We don’t begrudge anyone in their business success, but it’s important for our stakeholders, particularly governments, to understand that the business of providing global connectivity is still a very tough one.”

At the industry level, a significant milestone has been achieved with an expected return on invested capital (ROIC) of 7.5 percent. For the first time, the industry-level average ROIC will be in excess of its cost of capital, which has fallen to 6.8 percent largely due to lower bond yields.

This industry average is, however, dominated by airlines in the U.S., which have benefitted the most from the fall in U.S. dollar-denominated fuel prices, a strong local economy, and industry restructuring. U.S. air carriers have been able to use this profitability to invest in new fleets, pay down high levels of debt, and deliver a normal return to investors through dividends and share buy-backs.

IATA analysts say that this has been driven by the relatively strong economy, a restructured industry, and the lower oil price. The U.S. is expected to see a 3 percent growth in demand, although capacity is starting to pick up with an anticipated 3.1 percent expansion.